Note: a “Tenbagger” is a stock having increased ten times of the initial value for an investor. The term was created by Peter Lynch, the most successful fund manager in the world.
Nothing is better learning experience than a real story. I bought Tencent shares at around HKD150 per share in 2009 to 2010. After the 1 to 5 share split, my initial buying prices on average became HKD30.59 per share based on the records from my brokerage firm. I sold all Tencent shares at HKD343.04 in Oct 2017, making 11 times of my initial investment from 8 years ago. So it’s actually a Elevenbagger! It was my biggest holding and most successful investment.
Why did I buy it?
When I initially noticed Tencent, it had not created Wechat. At the time, most of people in China, not to mention worldwide, never had heard of Tencent, including myself, but knew QQ well. My guess was that at least half of the population using a PC in China used QQ on daily bases. They used QQ to chat on PCs. Why only half of the population used it? The other half was using MSN messenger and most of them were white collar workers, working in multinational companies in tier one Chinese cities. They even looked down on people using QQ, who worked for local Chinese companies, or worked as blue collar workers, owning less income, living in smaller cities.
I was proudly a MSN messenger user initially. However, I found myself not only starting using QQ, but also using it more and more frequently because more of my friends were using it. QQ seemed having more users and more user friendly.
As a stock market investor, I am constantly looking for good investment opportunities. One day, a question suddenly jumped in my mind. What’s this QQ company? Was it publicly listed? If QQ could have billions of users, was increasing users and beating Microsoft in online chatting, it’s like a toll bridge and would make big money soon or later. The result is Tencent. What a humble name!
They were actually making a lot of money, not by QQ, but from the games’ platform. Online games have big and growing market too. Comparing with other Chinese technology companies, I found that Tencent had better management team and better CEO. At bottom line, Tencent didn’t do evils although they were very aggressive in doing business, while the others did.
After my building up my holdings in Tencent shares for a while, they created Wechat. The rest is the story every one paid attention.
Why did I sell in Oct 2017?
I saw serious crisis coming in Chinese economy and the political system, even before Trump started trade war with China. Every company will be affected, including Tencent. Secondary, the management of Tencent was losing focus and invested in very broad various businesses instead of its game and social media platform. Of course, the valuation was too high with the consideration of coming crisis and losing of focus at the end of 2017.
This is the story of my 2nd tenbagger. My first tenbagger was Raffles Education in Singapore.
Very often the Gold mine is just under your window and you never ever pay any attention to it, just because it doesn’t create a lot of noise and doesn’t shine.